If you compare Chapter 7 bankruptcy to Chapter 13, you might think that Chapter 7 offers the most advantages. While this is sometimes true, Chapter 13 is sometimes the better choice. Here are some of the situations in which people benefit more from using Chapter 13 rather than Chapter 7.
When a person falls behind on his or her mortgage and wants to keep this home, the person will need to act quickly to prevent foreclosure from occurring. In this case, a person could attempt to achieve a mortgage medication. However, this is a complicated and long process that offers no guarantees.
The only other option a person has, unless he or she can pay all the arrears, is filing for Chapter 13. When this person files for Chapter 13, several things will happen:
1. The court will issue an automatic stay, which stops the lender from pursuing the debt in any way at all, and this stops harassment from all creditors.
2. The court will give this person up to five years to catch up on the payments of the loan.
3. The court will create a unique repayment plan the person can afford to ensure that he or she catches up on the loan.
Chapter 13, therefore, stops foreclosures, and it is often the only option a person has when he or she wants to save a home. Chapter 7 might be more appropriate if a home is not on the line.
The second situation where Chapter 13 is more advantageous than Chapter 7 is when a person's debts cannot be discharged through Chapter 7. The main reason people use Chapter 7 is for the debt forgiveness it offers. If most of a person's debts do not qualify for a discharge, that person wouldn’t get many benefits from Chapter 7.
This person might get advantages from Chapter 13, however, because this branch offers a way for the person to repay the debts without being harassed by creditors. This branch offers a unique repayment plan, which is based on the person's income and debts. The plan lasts for three to five years.
During this time, the person makes payments on a weekly, bi-weekly, or monthly basis. At the end of the plan, the person will not only owe less money on the debts, but he or she will also be caught up on every debt, leaving the person with a fresh start.
Disqualification From Chapter 7
The other situation to consider is one when a person does not qualify for Chapter 7. The main factor used to determine if a person qualifies is the person's income. If this person makes too much money, he or she cannot use this branch of bankruptcy.
The person will likely qualify for Chapter 13, though. While not qualifying for Chapter 7 is not the only reason a person should use Chapter 13, qualification is often one of the factors that play a role in this decision.
Before you choose either branch, you will need to find out what options you have. This will include finding out which branches you qualify for and which would provide you with the most relief from your financial situation. To do this, you’ll need to talk to bankruptcy experts about your particular situation and what you can do to improve your finances.
If you are in bad financial shape and cannot find a way out, bankruptcy might offer the relief you need. To find out more about bankruptcy, contact The Michelson Law Office. We can help you learn more about your options and which one would benefit your situation the most.